Australia is scheduled to publish the October monthly employment report on Thursday at 0:30 GMT, with market participants anticipating a modest improvement in labor market conditions. Still, the expected outcome indicates persistent weakness in the sector.
The Australian Bureau of Statistics (ABS) is expected to announce that the country added 20,000 new jobs in the month, while the Unemployment Rate is forecast at 4.4%, easing from the 4.5% posted in September. The Participation Rate was last seen at 67%.
The ABS reports both full-time and part-time positions through the monthly Employment Change. Generally speaking, full-time jobs entail working 38 hours or more per week, usually include additional benefits, and typically provide a consistent income. On the other hand, part-time employment generally means higher hourly rates but lacks consistency and benefits. That’s why the economy prefers full-time jobs. In September, Australia gained a modest 8,700 full-time positions and created 6,300 part-time ones.
Australian unemployment rate expected to tick lower in October
Ahead of the release, market players’ attention lies elsewhere: The United States (US) government ran out of funding on October 1 and has remained closed ever since. That means multiple federal workers have been furloughed, various benefits have been suspended, and the release of official data has been halted. The good news is that the stalemate is about to end, as the US Senate agreed on a funding bill early in the week and passed it to the Republican-controlled House of Representatives. The US government reopening is fueling optimism, keeping AUD/USD afloat around 0.6540 ahead of employment data.
The Reserve Bank of Australia (RBA) met in early November and decided to keep the Official Cash Rate (OCR) steady at 3.6%. The decision was prompted by higher-than-expected inflation over the year to September. “Trimmed mean inflation was 1.0 per cent in the September quarter and 3.0 per cent over the year, up from 2.7 per cent over the year in the June quarter. This was materially higher than expected at the time of the August Statement on Monetary Policy. Headline inflation rose sharply to 3.2 per cent over the year in the September quarter, a large part of which was expected given the cessation of electricity rebates in a number of states,” the RBA statement reads.
The document also showed that labour market conditions eased by a “little more than expected,” although a range of indicators continue to suggest that some tightness remains in the labour market. Bottom line, Australian policymakers are far more concerned about inflation than about employment.
And it is not just the RBA. Several major Australian banks have begun raising their fixed rates, according to a report from realestate.com.au, which points to falling expectations for additional interest rate cuts in the near future. There is still a chance of a rate cut in February, but the odds for a rate hike have increased.
With that in mind, the upcoming employment report could temporarily impact the AUD, but it would hardly have a substantial effect on future RBA monetary policy decisions. As usual, a weaker-than-anticipated report should be negative for the AUD, while stronger-than-anticipated figures should boost demand for the Aussie.
When will the Australian employment report be released and how could it affect AUD/USD?
The ABS October report will be released early on Thursday. As previously noted, the Australian economy is expected to have added 20,000 new jobs in the month, while the Unemployment Rate is forecast at 4.4%. Market participants will also be attentive to the breakdown of full-time and part-time positions on the expected 20,000 headline.
Valeria Bednarik, Chief Analyst at FXStreet, notes: “The AUD/USD pair is technically neutral ahead of the announcement, according to technical readings in the daily chart. Still, the pair pressures the upper end of its recent range, which somehow skews the risk to the upside.”
Bednarik adds: “US government reopening news is likely to overshadow data, if the shutdown ends before the Australian figures come out. If that’s not the case, the AUD/USD pair could jump initially towards 0.6590 and later extend the advance towards the 0.6630 price zone. Disappointing figures could see the pair retracing initially towards the 0.650 mark, while below the latter, there is scope for a slide towards the 0.6440 price zone.”
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
Economic Indicator
Unemployment Rate s.a.
The Unemployment Rate, released by the Australian Bureau of Statistics, is the number of unemployed workers divided by the total civilian labor force, expressed as a percentage. If the rate increases, it indicates a lack of expansion within the Australian labor market and a weakness within the Australian economy. A decrease in the figure is seen as bullish for the Australian Dollar (AUD), while an increase is seen as bearish.
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